Purpose on Payday

SEC Newgate's view

A damning report published by the United Nations Intergovernmental Panel on Climate Change (IPCC) this month highlighted just how far we stand from our net zero targets. It marked the fourth and final report of its current assessment cycle, and the most sombre to date. The headline statement of the report stressed that the world is not on track to meet the Paris Agreement’s goals. The report claims that even if stated environment policies are implemented to their full, the likely result will be a 2.8C temperature rise — a far distance from both the 1.5C target and the ceiling 2C pathway laid out in 2015.

However, the report offered a glimmer of hope that this will be temporary if we act fast to introduce carbon reduction and capture technology. The report calls for a sixfold increase in finance — through public and private finance collaboration — towards emissions reduction projects by 2030; rapid scaling-down of fossil fuels; and heavy investment in carbon removal technologies. 

Following the IPCC report, The UK’s Climate Change Committee (CCC) reported on the UK’s climate adaptation progress and concluded there was a “a striking lack of climate preparation from government.” It said the current National Adaptation Programme fails to match the scale of the challenge now facing the country and lacks a clear vision. The scathing update on the country’s preparedness stressed the urgency of creating a strong policy programme to ensure we can withstand the worst effects of climate change.

The report from the IPCC, and the subsequent comment from the CCC, mounted pressure on the government’s much anticipated and media branded “Green Day”. Sparking references to Green Day’s Boulevard of Broken Dreams, the policy plan has now officially been titled the less catchy, “Powering Up Britain: Energy Security Plan”.

The net zero plan includes a response to Skidmore’s Net Zero Review, the Energy Security Strategy, the Green Finance Strategy, and the Net Zero Delivery Plan, and aims to respond to the competitive policies of the country’s U.S. and E.U counterparts (US Inflation Reduction Act and EU Net Zero Industry Act). The Green Finance Strategy was one area that showed some particularly positive progress, providing an update on the Green Finance Taxonomy and the Transition Finance Market Review; announcing the UK’s first Nature Markets Framework; highlighting that a consultation on transition plans will be scheduled for the second half of 2023; and sharing plans to establish two advisory committees on sustainability reporting standards. Meanwhile, the strategy also included measures to increase support for the heat pump, carbon capture, nuclear and hydrogen industries.

However, despite the weighty content, campaigners have voiced their disappointment on the legally bound plan. Described as “wish-washy” and “half-baked, half-hearted”, much of the content comprised of a rehashing of previously announced measures with very little public funding yet confirmed to evidence the government’s true commitment to the UK’s net zero goals. As a result, climate lawyers will be combing through the details of the revised strategy to confirm if it does in fact meet the legal requirements of the government’s carbon reduction promises. 

This month sees the legal sector increasingly play a role in the climate debate, with more than 120 prominent legal professionals announcing that they will not represent fossil fuel companies or prosecute climate change protestors. The “declaration of conscience” signed by members of “Lawyers Are Responsible” is thought to mark the first time in legal history that barristers have engaged in a collective act of civil disobedience. Time will tell if this will be the start of a bigger movement within the legal sector, and perhaps more broadly, a wider shift in attitudes towards climate activism.

While legal pressure may be taken off climate activists, the same can’t be said for ESG funds. Following on from the widespread criticism of “ESG”, it’s been a month of clampdowns on those labelled as “sustainable”. This month saw the Financial Conduct Authority carry out a preliminary review of ESG benchmarks, finding the overall quality was poor and outlining where improvements must be made. The MSCI announced that it was overhauling its approach to ESG ratings, cutting the number of ESG rated funds by more than 90%. Fitch Ratings has followed with a similar announcement, stating that the ESG rating company will be carrying out a mass review of credit scores to ensure climate-change imposed risks are accounted for, placing 1,600 non-financial companies on notice this year. As regulation tightens on ESG and the number of funds who are able to market themselves as sustainable fall, it will be interesting to see the impact on the value of such investments and where this takes the ESG debate next.

The Road Ahead

By Imogen Shaw

As the dust settles on “Green Day”, where next for the government’s agenda?

Alongside the publication of the flagship energy security, net zero and green finance strategy policy papers, a raft of new consultations were released (or promised) on topics ranging from bioenergy to sustainable aviation fuel. Many of these will keep industries in the green space busy over the coming months, as will the hours of promised further consultation with business as the government looks to firm up the detail of its net zero agenda.

However, despite the sheer volume of information published yesterday (more than 2,800 pages in total) it is not altogether clear whether the government understands where it needs to go next.

In advance of “Green Day”, the Climate Change Committee, the National Infrastructure Commission, and Net Zero Review chair Chris Skidmore MP all raised their concerns that the UK is on course to miss its ambitious net zero targets. The government’s 2021 Net Zero Strategy was so light on specific detail that the High Court ruled Ministers needed to revise and republish it.

Ostensibly designed to address last year’s court ruling, yesterday’s announcements offered little in the way of strategic changes, revised plans or new funding. Yesterday’s leading article in The Times summed it up as “a continued reluctance to make the big strategic decisions needed to deliver net zero”.

Yesterday marks the third time the government has attempted to clarify its strategic next steps on achieving net zero, but the overwhelming feeling from the green energy sector is that it has retreated, once again, to the safety of commissioning another round of consultations and reviews in lieu of making some difficult choices.

Consultations are an important policymaking tool. However, if the UK is to meet its net zero targets, the government needs to start making firm strategic decisions on questions such as how much to invest in early stage green technologies, versus how much money (and political capital) to spend on scaling up proven green technologies to ensure we hit our targets.

If we are to close the gap between the UK and its leading international competitors in what Skidmore has described as the “global race” to lead the clean energy revolution, the road ahead needs to see the UK take net zero policy from the ambition to the delivery stage.